PARIS, July 29 (Reuters) - Airbus is drawing up

a turnaround plan for its struggling Space Systems business,

industry sources said, without waiting for the outcome of

European consolidation talks that include Italy's Leonardo as

well as France's Thales.

Airbus also hopes to complete a separate Space Systems

strategy review in the fourth quarter as it reels from 1.5

billion euros ($1.6 billion) of recent charges, they said.

But even beforehand, it aims to announce a restructuring of

Space Systems activities in September and has launched an urgent

cash containment plan across the wider Defence and Space unit,

where managers have declared the cost situation "critical".

Airbus declined to comment.

CEO Guillaume Faury told reporters last week that Airbus was

looking at opportunities to create scale in defence, space and

particularly satellites markets where traditional players have

been heavily disrupted by the success of new constellations.

La Tribune and Reuters reported earlier this month that

Airbus and France's Thales were exploring a tie-up of

space activities as new competition disrupts the sector.

On Monday, industry sources said those talks also include

Leonardo, partner to Thales in a pair of ventures

focusing on satellite manufacturing and the services business.

None of the companies involved had any comment.

Airbus is one of the two largest satellite makers in Europe

alongside Thales Alenia Space (TAS), two-thirds owned by Thales

and one-third by Leonardo. Telespazio, in which Leonardo owns

two thirds and Thales the rest, provides satellite services.

Europe's biggest satellite firms have traditionally been

geared towards one-off satellites parked in geostationary orbit,

deploying ambitious but costly technology. They face increasing

competition from small satellites in low Earth orbit built at a

fraction of the cost by new rivals led by Elon Musk's Starlink.

Last week, a senior Leonardo executive said the European

satellite sector needed to consolidate to keep pace with Musk's

rapidly-expanding network.

"This evolution needs probably to take into account some

form of consolidation," Lorenzo Mariani, co-general manager of

Leonardo, told Reuters.

In June, Airbus announced a 900-million-euro charge for

Space Systems activities, on top of a 600-million-euro hit last

year. The hole emerged after an audit of future revenues from

high-tech projects including OneSat and EGNOS.

Airbus and Leonardo both announce detailed half-year

earnings on Tuesday.

($1 = 0.9246 euros)